One Man’s ‘Outrage’ Is Another’s Petty Annoyance: Federal Court Tackles Promissory Fraud and Intentional Infliction Tort in Law Firm-Associate Spat

img_2052-3An Illinois Federal court expands on the contours of the IWPCA, promissory fraud, the employee vs. independent contractor dichotomy and the intentional infliction of emotional distress (IIED) tort in Lane Legal Services v. Le Brocq, 2016 WL 5955536,

The plaintiff law firm (“Firm”) sued a former associate (“Associate”) when he left to open his own law shop.  The Firm claimed the Associate stole firm business records, hacked into Firm computers and breached a written employment agreement.  The Associate fired back with multiple counterclaims against the Firm including ones for unpaid compensation under the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 et seq., fraud, and IIED.

IWPCA Claim

The Court denied the Firm’s motion to dismiss the Associate’s IWPCA count.  The IWPCA requires an employer to pay final compensation to a separated employee no later than the next regularly scheduled payday.  Independent contractors, in contrast to employees, aren’t covered by the IWPCA.

The key question when deciding whether someone is an employee or an independent contractor is the level of control exerted over the plaintiff.  The more autonomy a plaintiff has in performing his job functions, the more likely he is deemed an independent contractor and not subject to the IWPCA.

Associate attorneys are generally considered employees under the IWPCA.  While the Associate here had a unique relationship with the Firm in the sense he was entitled to a share of the Firm’s fees, the Court ultimately found the Associate was an employee under the statute as the Firm could still dictate the details of the Associate’s legal work. 

‘Promissory’ Fraud

The Court found the Associate alleged enough facts for his fraud counterclaim to survive the Firm’s motion to dismiss.  In Illinois, a common law plaintiff must plead (1) a false statement of material fact, (2) knowledge or belief by the speaker that a statement is false, (3) intent to induce the plaintiff to act, (4) action by the plaintiff in reliance on the statement, and (5) damages.

Where fraud is predicated on forward-looking/future statements, the claim is a non-actionable “promissory fraud.”  An exception to this rule lies where the fraudulent conduct is part of a scheme to defraud – an exception that governs where there is a pattern of deceptive conduct by a defendant.  As few as two broken promises can amount to a scheme of defraud although that is not the norm. (**6-7).

The court found that the Associate’s allegations that the firm falsely stated it supported him “leaving the nest” and starting his own firm knowing it would later retaliate against him for doing so was factual enough to beat the Firm’s motion to dismiss.

Intentional Infliction of Emotional Distress (IIED)

The Court dismissed the associate’s intentional infliction claims finding that the Firm’s conduct, while possibly vindictive, still wasn’t objectively extreme and outrageous enough to sustain an IIED action.

An IIED plaintiff must show: (1) extreme and outrageous conduct, (2) the defendant’s intent to inflict severe emotional distress or knowledge that there was a high probability his conduct would inflict such distress, and (3) the conduct caused severe emotional distress.  Whether conduct rises to the level of extreme and outrageous is judged on an objective standard based on the facts of a given case and must be more than insults, threats, indignities, annoyances or petty trivialities.  To be actionable, the conduct must be “unendurable by a reasonable person.”

Illinois courts especially disfavor applying the IIED tort to employment settings since nearly every employee could conceivably have a claim based on everyday work stressors.

The Court found that the Firm’s challenged actions – filing a frivolous suit and bad-mouthing the associate to regulatory bodies – while inappropriate and bothersome, didn’t amount to extreme and outrageous conduct that would be unbearable to a reasonable person.  As a result, the Court dismissed the associate’s IIED claim.

Take-aways:

(1) A plaintiff can qualify as an employee under the IWPCA even where he shares in company profits and performs some management functions.  If the employer sufficiently controls the manner and method of plaintiff’s work, he likely meets the employee test;

(2) While promissory fraud normally is not actionable, if the alleged fraud is part of a pattern of misstatements, a plaintiff may have a viable fraud claim – even where there is as few as two broken promises;

(3) A colorable intentional infliction claim requires a showing of extreme and outrageous conduct that go beyond harsh business tactics or retaliatory conduct.  If the conduct doesn’t demonstrate an overt intention to cause mental anguish, it won’t meet the objective outrage standard.

 

Ill. Wage Payment and Collection Act Doesn’t Apply to NY and Cal. Corps. With Only Random Ill. Contacts

As worker mobility increases and employees working in one state and living in another almost an afterthought, questions of court jurisdiction over intrastate workplace relationships come to the fore.  Another issue triggered by a geographically nimble workforce is whether a non-resident can invoke the protections of another state’s laws.

Illinois provides a powerful remedial scheme for employees who are stiffed by their employers in the form of the Wage Payment and Collection Act, 820 ILCS 115/1 (“Wage Act”).  See (here).  The Wage Act allows an employee to sue an employer for unpaid wages, bonuses or commissions where an employer breaches a written or oral employment contract.

The focal point of Cohan v. Medline Industries, Inc., 2016 WL 1086514 (N.D.Ill. 2016) is whether non-residents of Illinois can invoke the Wage Act against an Illinois-based employer for unpaid sales commissions.  The plaintiffs there, New York and California residents, sued their Illinois employer, for breach of various employment contract commission schedules involving the sale of medical devices.

The Northern District of Illinois held that the salespeople plaintiffs could not sue under Illinois’ Wage Act where their in-person contacts with Illinois were scarce.  The plaintiffs only entered Illinois for a few days a year as part of their employer’s mandatory sales training protocol.  All of the plaintiffs’ sales work was performed in their respective home states.

Highlights from the Court’s opinion include:

  •  The Wage Act doesn’t have “extraterritorial reach;” It’s purpose is to protect Illinois employees from being shorted compensation by their employers;
  • The Wage Act does protect non-Illinois residents who perform work in Illinois for an Illinois employer;
  • A plaintiff must perform “sufficient” work in Illinois to merit Wage Act protection;
  • There is no mechanical test to decide what is considered “sufficient” Illinois work to trigger the Wage Act protections;
  • The Wage Act only applies where there is an agreement – however informal – between an employer and employee;
  • The agreement required to trigger the Wage Act’s application doesn’t have to be formal or in writing. So long as there is a meeting of the minds, the Court will enforce the agreement;
  • The Wage Act does not cover employee claims to compensation outside of a written or oral agreement

Based on the plaintiffs’ episodic (at best) contacts with Illinois, the Court found that the Wage Act didn’t cover the plaintiffs’ unpaid commission claims.
Substantively, the Court found the Wage Act inapplicable as there was nothing in the various written employment agreements that supported the plaintiff’s damage calculations.  The plaintiffs’ relationship with the Illinois employer was set forth in multiple contracts that contained elaborate commission schedules.  Since the plaintiff’s claims sought damages beyond the scope of the written schedules, the Wage Act didn’t govern.
Take-aways:

1/ The Illinois Wage Act will apply to a non-resident of Illinois if he/she performs a sufficient quantum of work in Illinois;

2/ Scattered contacts with Illinois that are unrelated to a plaintiff’s job are not sufficient enough to qualify for a viable Wage Act lawsuit;

3/ While an agreement supporting a Wage Act claim doesn’t have to be in writing, there must be some agreement – no matter how unstructured or loose – for a plaintiff to have standing to sue for a Wage Act violation.

Cab Passenger Fares Aren’t “Wages” Under IL Wage Payment and Collection Act – 7th Circuit

The salient question considered by the Seventh Circuit in Enger v. Chicago Carriage Cab Corp., 2016 WL 106878 (7th Cir. 2016) was whether “wages” under the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 et seq. (the “Act”) encompasses “indirect wages” – monies paid an employee by third parties (i.e. as opposed to money paid directly from an employer).

The answer: No, it does not.

The plaintiffs, current and former Chicago cab drivers over a ten-year time frame sued various cab companies alleging Wage Act violations and unjust enrichment.

The plaintiffs alleged the companies violated the Act by misclassifying them as independent contractors instead of employees. The plaintiffs argued that the cab companies requirement that the driver plaintiffs pay daily or weekly shift fees (basically, a lease payment giving the drivers the right to operate the cabs) and other operating expenses, the companies violated the Act.

Affirming the district court’s motion to dismiss, the Seventh Circuit gave a cramped construction to the term wages under the Act examined the content and reach of the Act as applied to claims that

The Act gives employees a cause of action for payment of earned wages. “Wages” is defined by the Act as compensation owed an employee by an employer pursuant to an employment contract.

While the Seventh Circuit agreed with the drivers that there was at least an implied contract between them and the cab companies, those companies did not pay wages to the drivers as the term is defined by the Act.

This was because there was no obligation for the cab company to pay anything to the driver. The cab driver-cab company relationship was a reciprocal one: the driver paid a license fee to the company and then collected fares and tips from passengers.  No money was paid directly from the company to the driver.

The Court found that for the Act to apply to the drivers claims, it would have to expand the statutory definition of wages to include “indirect compensation:” compensation from someone other than the employer. Since there was no published case law on this issue, the Seventh Circuit refused to expand the Act’s definition of wages to include non-employer payments.

For support, the Court noted that Illinois’ Minimum Wage Law specifically defines wages to include gratuities in addition to compensation owed a plaintiff by reason of his employment. Since the legislature could have broadened the Act’s wages definition to include indirect compensation (like tips, etc.) but chose not to, the Court limited wages under the Act to payments directly from an employer to employee.

The Court also rejected the drivers’ argument that they received wages under the Act since drivers are often paid by the cab company when a passenger pays a fare via credit card. In this credit card scenario, the court found that the cab company simply acted as an intermediary that facilitated the credit card transaction. The company did not assume role of wage paying employer just because its credit card processor was used to handle some passenger credit card payments.

The driver’s unjust enrichment claim – that the cab companies were unjustly enriched by the drivers’ shift fees – also fell short.  Since there was an implied contract between the drivers and cab companies, unjust enrichment didn’t apply since an express or implied contract negates an unjust enrichment claim.

Afterwords:

This case clarifies that recoverable wages under Illinois’ Wage Act must flow directly from an employer to an employee.  Payments from third-party sources (like cab passengers) aren’t covered by the Wage Act.

Enger also serves as latest in a long line of cases that emphasize that an unjust enrichment can’t co-exist with an express or implied (as was the case here) contract governs the parties’ relationship.